LIKE AFFLUENT consumers elsewhere, those in China cannot resist the charms of luxury goods such as handbags made from crocodilian leather.
The market potential is big, and companies like Singapore-listed Heng Long International, one of the top five tanneries in the world for crocodilian leather, are eyeing more business there.
To start with, Heng Long is seeking ways for China to quicken the pace that the latter issues import permits for Heng Long’s tanned and processed crocodilian leather.
Now the permits take a few months to be issued – something that Heng Long management would address when they meet Beijing officials soon.
The Chinese market is being targeted by Heng Long following the signing of a free trade agreement between Singapore and China in October 2008, which slashed China’s previously hefty import tax on Heng Long’s crocodilian leather to zero.
If imports of the crocodilian leather into China can be sped up, Western manufacturers of luxury goods would be attracted to outsource or relocte their work to China to save costs.
Heng Long’s management spoke about this during a lunch yesterday (Feb 24) for analysts and guests to discuss its FY08 financial results.
Profit of $1 million a month in 2008
In FY08, Heng Long achieved $11.4 million in net profit on $68.2 million of sales of its leather to over 80 direct customers, including those that manufacture for Prada and Stefano Ricci.
Heng Long also supplies raw and crust crocodilian and other exotic skins to markets such as China, Japan and Thailand.
Reflecting the luxurious nature of the goods that Heng Long’s products are used for, the company reported a handsome net profit margin of 16.7% for FY08.
The figure would have been a higher 17.8% if once-off IPO expenses were excluded.
If the industry’s supply chain is illustrated as an hourglass, Mr Koh Choon Heong, executive director, pointed out that the top five tanneries, including Heng Long, occupy the narrow neck of the hourglass.
These tanneries ‘store’ most of the world’s supply of crocodilian skins, and ‘release’ them at strategic times. Supply is limited (it takes a few years for crocodiles to be harvested) and is always exceeded by demand.
Heng Long had an inventory of $78.6 million of skins at the end of last year.
“Having gone through several economic peaks and troughs, we acknowledge that strategic inventory planning is vital a it can potentially be a powerful tool to influence the supply chain,” said Mr Koh.
The company has a healthy cash and cash equivalent level of $8.4 million as at end-2008.
It recommended a first and final dividend of 1.28 cents a share, or a 4.9% yield based on a recent stock price of 26 cents.
Full results announcement on SGX website.
For insights into how Heng Long processes skins, read our story: HENG LONG: Master of science & art of tanning croc skin
